Beginning an Investment Journey...

[tech/a]

Investing with a reasonable degree of success is not rocket science, not even close...plans will evolve, he will find out where his comfort zones are, what works for him and what doesn't....all people need to learn by doing...books, study and thinking will only get you so far.

I agree.
But most turn it into Something akin to rocket science or brain surgery.
If it was that simple
We would have seen that ( simple ) from the poster.
We haven't --- I see what T/H is seeing.

What we are saying is do as you say and he sees fit
BEFORE he invests a cent.
Sadly he's going to blast into space without knowing his chances for success.
Risking his house and possible happiness in the process.

If he eventually posts up a plan I for one will be happy to critique it with practical suggestions--- look forward to it.

 

[McLovin]

Investing with a reasonable degree of success is not rocket science, not even close...plans will evolve, he will find out where his comfort zones are, what works for him and what doesn't....all people need to learn by doing...books, study and thinking will only get you so far.

Do you think taking that journey with a LoC secured by a charge over your home is the best way to go?

 

[So_Cynical]

Do you think taking that journey with a LoC secured by a charge over your home is the best way to go?

NO

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When i started my investment journey in mid 2007 my original plan was to take out a margin loan and use very low margins as a safety net, something like 50/50 on stocks with margin ratios of 70/30 and 80/20

For no particular reason (well thinking about it now) i didn't feel 100% comfortable with taking out the loan later so i just kept it in the back of my mind....lucky for me cos even with 50/50 margin ratios i would of ended up running out of money in the GFC and being a forced seller...i would of lost the lot, well 80% of my net worth.

Personally, as far as my investment journey goes...in the time period before March 09 having borrowed money would of been a big negative and in the period of time after till now a big positive...the market and the 2 edged sword again.

 

[tech/a]

NO

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When i started my investment journey in mid 2007 my original plan was to take out a margin loan and use very low margins as a safety net, something like 50/50 on stocks with margin ratios of 70/30 and 80/20

For no particular reason (well thinking about it now) i didn't feel 100% comfortable with taking out the loan later so i just kept it in the back of my mind....lucky for me cos even with 50/50 margin ratios i would of ended up running out of money in the GFC and being a forced seller...i would of lost the lot, well 80% of my net worth.

Like most you don't know how to position size using magin.
You see margin as extra start capital THAT YOU PUT AT RISK.
Used correctly you won't increase your risk at all.

It's all about learning how to correctly position size.

 

[So_Cynical]

Like most you don't know how to position size using magin.
You see margin as extra start capital THAT YOU PUT AT RISK.
Used correctly you won't increase your risk at all.

It's all about learning how to correctly position size.

Yes

I only recently learned (Thanks SKC) what i was position sizing for return and not risk.

 

[Trembling Hand]

For no particular reason (well thinking about it now) i didn't feel 100% comfortable with taking out the loan later so i just kept it in the back of my mind....lucky for me cos even with 50/50 margin ratios i would of ended up running out of money in the GFC and being a forced seller...i would of lost the lot, well 80% of my net worth.

Personally, as far as my investment journey goes...in the time period before March 09 having borrowed money would of been a big negative and in the period of time after till now a big positive...the market and the 2 edged sword again.

So S_C we now agree. Remember he is 100% leveraged.

 

[Trembling Hand]

Like most you don't know how to position size using magin.
You see margin as extra start capital THAT YOU PUT AT RISK.
Used correctly you won't increase your risk at all.

It's all about learning how to correctly position size.

Thats if you do have cash in the first place where Vadar hasn't any.

 

[tech/a]

Thats if you do have cash in the first place where Vadar hasn't any.

Of course.

 

[Julia]

With apologies for the diversion: why is it that everyone is 'on a journey' these days?
It seemed to start with the dreaded Masterchef where all the contestants as they were eliminated offered profuse thanks to the judges for guiding them on their 'passionate journey with food'.

Sorry.

 

[Ves]

With apologies for the diversion: why is it that everyone is 'on a journey' these days?
It seemed to start with the dreaded Masterchef where all the contestants as they were eliminated offered profuse thanks to the judges for guiding them on their 'passionate journey with food'.

Sorry.

It has nothing to do with Masterchef, and has long been used before that reference.

jour·ney
   [jur-nee] Show IPA noun, plural jour·neys, verb, jour·neyed, jour·ney·ing.
noun
1. a traveling from one place to another, usually taking a rather long time; trip: a six-day journey across the desert.
2. a distance, course, or area traveled or suitable for traveling: a desert journey.
3. a period of travel: a week's journey.
4. passage or progress from one stage to another: the journey to success.

 

[CanOz]

If i could contribute something of value here to help you then i would like to recommend that you at least try to incorporate some kind of a filter to keep out of trouble when the inevitable market downturn happens....

Perhaps you could use an index, such as the VIX, if the VIX is above a certain level (the bear market barometer) then you go to cash?

Also, have you thought of giving your system an slight edge using seasonal biases?

You could sell in May and buy in November, as an example.

CanOz

By coincidence, the May edition of Technical Analysis of Stocks and Commodities has very simple seasonal system presented. It's based on the "sell in May and Go away" theory. Actually the dates used are April 20th and November 1st. The author actually uses a simple MACD for the signal and an etf to trade, but you could use this as your filter. Then pick some 'good value' stocks and you could actually have an edge....

Throw in some money management to limit your risk of ruin and you're in business!

CanOz

 

[Julia]

It has nothing to do with Masterchef, and has long been used before that reference.

Um, I do know the meaning of the word. My comment related to the way it has become such a cliche in recent times.
However, an unimportant point and one I should probably have kept to myself.

 

[Vader]

Alrighty then... I'm not sure how far we're going to get beyond some of the recurring themes here, but I am getting some good things to think about, so pressing on.

Yes, I can see my language is a bit inconsistent - that would be the beginner tag I lumped on myself from the start, combined with the fast pace of this thread and the continual reassessment and learning that is going on... I expect that to continue for some time as I learn more... does that mean I should quit until I've learned everything? Not a chance - where's the fun in that (you can't succeed by sitting on the sidelines... ready, fire, aim).

Now for my trading strategy/plan... at one point during the already fast pace of this thread I was thinking of adding a lot of different elements into this plan, but the best course of action is usually to keep things simple - not only is it easier to understand, but easier to execute. I have also trimmed back a couple of the numbers from my original thoughts... so here it is - critique away.

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Total Amount of Available Funds: $100k, consisting of:
Line of Credit: $70k (interest on balance @ 6.73%)
Cash*: $30k

(Note: In this instance 'Cash' is not 'free cash', it is a combination of money sitting in an offset account and advanced payments on the mortgage. It has the same liquidity as cash i.e. I can access it immediately, but using it does come as a cost i.e. mortgage rate of 6.63%).

* Maximum position size when purchasing a new company: 7% (i.e. $7,000)

* Maximum funds invested in one calendar month: 17.5%

* Maximum funds to be used for share purchases: 70%

Note: this equates to $70k being used as capital (LoC). The remaining $30k in cash is a reserve amount that may be used for short-term funds if fully invested (e.g. take advantage of a SPP etc.) but must be restored through the sale of other shares in the portfolio within two weeks of use.

* All purchases will have documented entry and exit criteria before purchasing.

* All purchases will have a 20% stop loss set below the average purchase price. If the share price rises, this stop will be raised with it until it reaches the average purchase price. This stop loss is in addition to the documented exit criteria.

* All purchases will be made with an investment time frame of 1-3 years (though will obviously continue longer if the exit criteria conditions allow), with the exception of:

* Up to two positions at any one time may be for a shorter-term investment time frame (up to 6 months). These purchases must include a specific catalyst that determines the time frame. The maximum position size for these purchases is 3.5% (i.e. $3500).

* Metrics to monitor: Total capital invested; Total capital at risk (based on stop losses); Total realised gain/loss; Total portfolio value; Total portfolio gain/loss.

* Continually monitor and reassess my strategy

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Ok, a couple of things that aren't there - most notably how I pick the stocks and how I arrive at entry and exit criteria... none of which I'm going to set in stone at this point as that is one area that will change over time especially early on... I realise that's not going to sit well with a few people, but I feel it is the best course of action. Keep in mind that I will be documenting these decisions for each purchase I make and in many cases I will document them here BEFORE I make the purchase.

It also doesn't factor in how holdings will grow above the 7% level (e.g. dividend reinvestment etc.) and what that means to the overall portfolio mix. This isn't a month one problem and will be added in time - as will other situations that need to be defined... this is one aspect to the monitor and reassess, I can see that there will be many questions that need to be added over the coming months.

Goals... at this stage my goals are pretty simple. Do not commit more than 7% on a single purchase, do not purchase more than 17.5% in one month.

What else is there, what parts don't make sense, what parts could be better?

Finally, if I don't take your advice on something, don't be offended... you'll get a chance to say "I told you so" at some point if things don't work out I'm sure

...and if you think I'm bonkers, I honestly don't mind you saying that either. While it's extremely unlikely you're going to convince me to stay out of the market (and yes I'm well aware that my 'plan' hasn't been tested by 17 virgins and anointed by the dalai lama and verified to give me a positive expectation of returning 34.721 cents per dollar invested), but I am listening and thinking about everything being said, in fact the conversation to this point has definitely reigned in my risk perception a notch or two.

...and finally, I do appreciate the concern about using borrowed funds (in fact a lot of the companies I'll be investing in will have low debt levels), but I am comfortable with the risk that I am taking on. Even if I were to lose the entire amount it would not cause me to lose my house or anything overly extreme... yes the wife will be pissed (ok, more than usual) and my chances of retiring before 65 will take a hit, and yes - that is easy to say *before* it happens... but there is also the upside to consider, and it is that upside that bring us all here.

 

[Trembling Hand]

Hopefully my last word on this,

appreciate the concern about using borrowed funds (in fact a lot of the companies I'll be investing in will have low debt levels),

Some irony in that.

 

[So_Cynical]

* Maximum position size when purchasing a new company: 7% (i.e. $7,000)

* Maximum funds invested in one calendar month: 17.5%

For the moment ill just comment on these 2 points drawing from my own experiences.

My current position size is/was 7K and i have to say it hasn't really worked for me and that's perhaps because i often average down so ive typically ended up with 12 or 14K in a single stock and that's way to much for me...i was position sizing for profit/reward so now im going back to sizing for risk 4>5K.

17.5% per month? ..in any given 12 months there will be a couple of great months to enter and a couple of shockers, if you could just avoid the worst 2 months of every year you wiil be way ahead of the game..read back over robusta's thread and you'll notice that he started at a very bad time to be buying any stock as sentiment had just turned...there are some months where you shouldn't be buying anything.

 

[skc]

Total Amount of Available Funds: $100k, consisting of:
Line of Credit: $70k (interest on balance @ 6.73%)
Cash*: $30k

(Note: In this instance 'Cash' is not 'free cash', it is a combination of money sitting in an offset account and advanced payments on the mortgage. It has the same liquidity as cash i.e. I can access it immediately, but using it does come as a cost i.e. mortgage rate of 6.63%).

...and finally, I do appreciate the concern about using borrowed funds (in fact a lot of the companies I'll be investing in will have low debt levels), but I am comfortable with the risk that I am taking on. Even if I were to lose the entire amount it would not cause me to lose my house or anything overly extreme... yes the wife will be pissed (ok, more than usual) and my chances of retiring before 65 will take a hit, and yes - that is easy to say *before* it happens... but there is also the upside to consider, and it is that upside that bring us all here.

$30k is more than enough capital to learn on the fly. Whatever amount you think you are comfortable losing now, half that, and half again, and that would still hurt twice as much as you think it would now.

Ditch the LOC. Or at least delay it by 6-12 months. The market will always be here when u get good at it. I don't know your financial circumstances but you wouldn't buy a $100k car with borrowed money just to learn driving, would you?

 

[ishakeel]

Very useful info in this thread. Thanks

 

[herzy]

Exactly what I wanted to say. Find a coherent set of entry and exit criteria. Don't buy fundamental and sell on price.

This is a theme that has come up quite a lot in this thread. This may seem like a silly question, but why not? FA / TA debate aside, what is the lack of logic that underpins this rule? I'm sure I'm missing something obvious...

Some people on these forums will tell you they can sit zen like upon their share portfolio without worrying about volatility knowing that in the fullness of time the universe will ensure that all their stocks will reach their true potential and will resonate to the cosmic singularity. I can't do that. I need to preserve capital and generate income and as we have witnessed in the past couple of years there is sufficient uncertainly and risk of significant cyclical swings in stock prices.

As for exiting based on price, every man has his price.

Well said. Just a question of finding what price that should be.

 

[craft]

This is a theme that has come up quite a lot in this thread. This may seem like a silly question, but why not? FA / TA debate aside, what is the lack of logic that underpins this rule? I'm sure I'm missing something obvious...

For me the problem is that you can’t have two masters. Who do you obey when the action that each demands is different. I think this is the crux of so many TA vs FA debates. For me both are excellent tools but I have never been able to mix them with any success.

I know plenty of people say you can combine, so you will have to work out for yourself what your truth is. Only having exposure when both agree might be one answer – but the market doesn’t seem to pay well for consensus, in my view you are likely to get needlessly whipsawed on your correct FA calls and miss some of the best TA signals – because speculative or highly leveraged / cyclical business that FA doesn’t lend itself to tend to give some of the best short/medium term trends when they go.

 

[craft]

(you can't succeed by sitting on the sidelines... ready, fire, aim).

In effect you are saying that you will learn from your mistakes. fair enough.

Bear in mind though you stay in this game if your exposure to your mistakes is not too large. I think you are still planning to take on too much risk too early. The upside is only consistently accessible through controlling risk.

Baby step your exposure. The more you don't loose the more you will have to apply after you have learnt some things.